Gov't to Compensate Firms Hurt by N.Korea Sanctions

The Unification Ministry said Thursday it will provide W122.8 billion in aid to 95 South Korean companies that suffered financial losses when relations with North Korea deteriorated (US$1=W1,123).

The government has previously provided these companies with some support along with low-interest loans to help them stay in business, but this is the first state-funded compensation for their losses.

The Lee Myung-bak administration halted tours to Mt. Kumgang after a South Korean tourist was shot to death by a North Korean soldier in July 2008. South Korea then halted trade with North Korea except the inter-Korean Kaesong Industrial Complex in May of 2010 following the North's sinking of the Navy corvette Cheonan.

The ministry said the support measures are part of efforts to fulfill the state's "responsibility to compensate the companies for difficulties following sudden policy changes."

However, when a South Korean company filed a lawsuit against the government in 2011 for financial losses caused by the government-led inter-Korean projects, a court ruled that the state cannot be held responsible. This has prompted critics to accuse the Unification Ministry of flouting the law.

The Unification Ministry said the measures would help those businesses engage in future inter-Korean projects, as relations with North Korea are expected to improve. Kim Seung, a former Unification Ministry official, said, "This could be a sign of the full-fledged resumption of cross-border economic cooperation."

South Korean businesses that claim to have suffered losses due to the halted tours to Mt. Kumgang and the cross-border trade ban have persistently demanded compensation from the government. But one former Unification Ministry official said, "Inter-Korean economic projects are largely monopolistic in nature, and generate guaranteed revenues when cross-border relations are good, but they must bear the risks as well when doing business with North Korea."

Some suspect that the measures, which were announced just a few days before the leaders of the two Koreas prepare to hold another summit, could be a sign of fledgling cross-border economic cooperation with North Korea. Nam Sung-wook at Korea University said, "The latest measures send private businesses the wrong message that the government will compensate them for any losses they suffer."

Others say it is unfair for businesses hurt while doing trades with other countries. One diplomatic source said, "The government has not compensated businesses that struggled after U.S. sanctions against Iran. It is simply absurd that taxpayers' money is being spent in this way, without any clear guidelines."